Divestment of Pringles to the Kellogg Company
Today, we can see various multinational companies (MNCs) that are operating in fast moving consumer goods. Procter and Gamble (P&G) is one of these because it owns multiple brand portfolios that have penetrated into industry markets across the world. This expansion is done by acquisitions and introduction of brands or SBUs in different industries. The task in this assignment is to critically review P&G’s rationale of divestment of one of its popular SBUs “Pringles”, and also the strategic fit of “Pringles” as diversification to the Kellogg Company. This critical analysis is done in the light of brand portfolio management. In the first part, selected theories or models that best suit to this case study are reviewed and critically analysed, while in the second part, application of these theoretical frameworks in relation to the corporate-level strategic decision made between P&G and Kellogg’s is critically discussed.
There exist different business models and frameworks that may relate up to certain levels to the strategic choice made in a corporate firm, such as one in this case study. These business portfolio models help parents or corporate organisations to understand and manage their small business units in their best interest. Among these are the most popular ones, called as BCG matrix, GE-McKinsey matrix and last not the least, Parenting matrix also known as Ashridge portfolio. Starting with the BCG (Boston Consulting Group) matrix, that shows us a framework which analyses different products of a company according to their market growth and relative market share.
This framework categorises the products into four quadrants called stars, question marks, cash cows and dogs, based on where they stand in terms of their market growth rate and share. Though BCG is a good model, however it is not always suitable to use as it has got some potential problems such as vagueness and capital market assumptions. Consultants also recommend The Directional Policy (GE-McKinsey) matrix that has a lot more to offer in categorizing company products. It measures businesses according to their competitive strengths and long-term attractiveness in the markets. The model helps the corporate organisations to understand different SBUs from investment and divestment point of views and also which new SBUs or products can be added to the business portfolio of these parent companies.
Market attractiveness include factors include market profitability trend market size, and expected market growth rate etc. whereas the competitive strengths include total market share, brand strength and customer loyalty. Once each product is given a particular value for its market attractiveness and business unit strength, it is plotted in the right position on the graph. Once the product is in its place, the company can decide a strategy for it. Having said that, this framework too has some limitations which makes it imperfect to use in many corporate firms. These limitations include inability to forecast the synergies that might exist between two or more SBUs, the nine boxes of the matrix may apparently look objective but their scoring is subjective which can produce biased results, it fails to represent the correct position for new SBUs.
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